26th Feb 2015
“Mad Hatter: “Why is a raven like a writing-desk?”
“Have you guessed the riddle yet?” the Hatter said, turning to Alice again.
“No, I give it up,” Alice replied: “What’s the answer?”
“I haven’t the slightest idea,” said the Hatter”
― Lewis Carroll, Alice in Wonderland
I recently wrote an article detailing the decision by Florida’s Fifth District Court of Appeal in U.S. Bank Nat. Ass’n v. Bartram, 2014 WL 1632138 (Apr. 25, 2014). For those who have not been following the gyrations in this particular area of the law, let’s lay it out as follows: The state of Florida gives the lender five years to begin a mortgage foreclosure action after what’s called the date of default or, in layman’s terms, the missed payment. If the bank files its lawsuit to foreclose within 5 years of the missed payment, we’re all good.
Naturally, Florida being Florida, things aren’t quite so easy. In the midst of the collapse of the housing bubble, courts of this state were quite literally swamped with mortgage foreclosure cases. To deal with this deluge of cases, banks hired lawyers on the cheap and got exactly what they paid for. Thousands of mortgage foreclosure cases were dismissed by the courts as a sanction for the multiple screw-ups by the attorneys for the banks or dismissed by the banks themselves when it became clear that they did not have the documents to establish ownership of the mortgage upon which they were foreclosing.
In any event, many of these dismissed cases have been sitting around for a long time and, in some cases, for longer than 5 years. The question is, when does the 5 year clock run on these cases that have already been dismissed once?
The Court in Bartram focused on the acceleration clause. An acceleration clause is contained in most mortgages and gives the bank the ability to call the entire balance of the loan due upon one missed payment. The reason for this is simple: a mortgage is basically an installment contract, requiring monthly payments over a long period of time. If the bank didn’t have the ability to call the entire balance due, it would face the prospect of having to file a new lawsuit to recover each missed monthly payment. On a 30 year mortgage, you can see why that’s not the preferred way to do it for the banks.
However, acceleration, while a powerful sword for the banks, proved to be double-edged. Florida case law had established that each new default, or missed payment, created a new “event” that started the 5 year clock running. In other words, the bank essentially had the life of the mortgage plus 5 years to file its mortgage foreclosure case. Good for the banks, bad for the borrower. But, if a bank accelerated the loan, then no more monthly payments and no more almost-endless time to file its mortgage foreclosure case.
The Fifth District in Bartram said that acceleration did not bar the bank from re-filing a mortgage foreclosure case beyond 5 years from the dismissal of the original foreclosure action because it found that the dismissal also dismissed the bank’s acceleration of the Note, meaning that upon the next missed payment, the bank had a new 5-year period in which to file its mortgage foreclosure.
Even while Bartram is before the Florida Supreme Court, a new case complicated the analysis even further. The Third District in Deutsche Bank v. Beauvais, filed December 17, 2014, stated that if the original mortgage foreclosure action was dismissed WITH prejudice, then the dismissal operated “on the merits,” meaning that the bank’s acceleration of the Note was dismissed along with the case. That being the case, the bank is not limited by the 5 year deadline to re-file its mortgage foreclosure case.
However, if the original mortgage foreclosure was dismissed WITHOUT prejudice, the dismissal was not “on the merits,” and the dismissal does NOT negate or “decelerate” the acceleration of payments due. Therefore, the bank must re-file within 5 years of the initial acceleration of the mortgage or it is barred from foreclosing the mortgage.
It’s readily apparent at this point that the Florida Supreme Court is going to have to get involved to straighten out the conflicts in the appellate courts. Title insurance is going to be very interesting in Florida over the next couple years!